The Paul Krugman Con: Social Security

Know what really bugs me about Paul Krugman? It’s that he’s a Nobel Prize : winner in economics who’s probably forgotten more about the subject than most of us will ever know. So, what does he do with all that knowledge? Very little, actually. In fact, a large part of his shtick is to say ridiculously stupid things about : the : economy that panders : to liberal sensibilities. In other words, instead of using the tremendous amount of knowledge he has to try to better people’s lives, Krugman instead uses it to enhance his credibility while he misleads people. It would be like Greg LeMond getting paid millions to convince people that they need to become experts at riding : tricycles to become Tour De France champions.

Now, if you’re wondering what inspired this outburst, beyond Krugman’s usual nonsense, it’s his latest deliberately deceptive ramblings on Social Security,

We went through all this at length back in 2005, but let me do this yet again.

Social Security is a government program funded by a dedicated tax. There are two ways to look at this. First, you can simply view the program as part of the general federal budget, with the dedicated tax bit just a formality. And there’s a lot to be said for that point of view; if you take it, benefits are a federal cost, payroll taxes a source of revenue, and they don’t really have anything to do with each other.

Alternatively, you can look at Social Security on its own. And as a practical matter, this has considerable significance too; as long as Social Security still has funds in its trust fund, it doesn’t need new legislation to keep paying promised benefits.

OK, so two views, both of some use. But here’s what you can’t do: you can’t have it both ways. You can’t say that for the last 25 years, when Social Security ran surpluses, well, that didn’t mean anything, because it’s just part of the federal government – but when payroll taxes fall short of benefits, even though there’s lots of money in the trust fund, Social Security is broke.

And bear in mind what happens when payroll receipts fall short of benefits: NOTHING. No new action is required; the checks just keep going out.

So according to Krugman, since Social Security ran a surplus for all those years, all is well! Nothing to see here — and it’s silly to suggest otherwise…except, what happened to those surpluses?

Well, we spent them all, didn’t we? Then, after we spent the money, we issued bonds for the same money we’ve already spent. Krugman refers to this as a “trust fund,” but it’s actually much more comparable to an IOU. That’s because, again, the money has already been spent and to pay off the bonds, we’ll either have to borrow the money or take it out of the other revenue sources.

Let me just hammer this point home: Tomorrow, when the government doesn’t have enough revenue inflow to cover the outflow of money it pays for Social Security, it will not take that money from a “trust fund.” It can’t, because there is no actual money in the “trust fund.” That means the government will either borrow the money or take it from other forms of tax revenue coming into the government and it will pay it out.

Why should this alarm us? Because since there is no money set aside for this program and it’s going to be a huge drain on the treasury, if the government gets into a cash crunch, it will be very tempting to dramatically pare back the benefits of Social Security recipients. Politically, that would be very unpopular, but the government has every legal right to do it and if the nation gets into a big enough jam (see Greece), one of the first things that’s likely to take an enormous hit is Social Security.

Krugman knows all of this, but it doesn’t suit his political objectives for the moment to talk about it. That’s too bad. Liberals will not pay attention to conservatives, but if guys like Krugman put doing what’s right for their country above saying what liberals want to hear, he could actually reach some people on the Left and make a difference.

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